The government is going to issue shortly a couple of Shariah-compliant bonds, generally known as Sukuk, worth some Tk 50 billion each to finance public-sector development projects.
Officials say these bonds are designed primarily as part of its effort to implement two development projects smoothly and also to help mop up excess liquidity from the country's banking system.
The bond will help draw excess money particularly from Shariah-based banks, non-banking financial institutions (NBFIs) and insurance companies for investment in an alternative way away from conventional interest-yielding tools.
The central bank, as a special-purpose vehicle (SPV) for the issuance of the upcoming government securities, has already collected various sorts of information on the Sukuk from the ministry of finance (MoF).
The MoF has already decided to implement demand-based government primary school-development project and rural infrastructure development project through issuing Sukuk bonds in two phases, according to the officials.
In the first phase, the government is set to raise Tk 50 billion through issuing the Sukuk bonds for implementation of the demand-based government primary school-development project.
Currently, the MoF and the Bangladesh Bank (BB) are working to issue the first Sukuk bond by the end of this month, they added.
A senior BB official said the government has planned to raise another Tk 50 billion for implementation of rural infrastructure-development project under the second Shariah-based bond within the current fiscal year (FY), 2021-22.
Sukuk is an Islamic financial certificate, similar to a treasury bond, and structured to generate returns in compliance with Islamic finance principles.
The ministry of finance as well as the central bank has made the latest moves against the backdrop of an upturn in excess liquidity in the country's banking system.
Surplus liquidity grew by more than 20 per cent to Tk 2208.80 billion as on October 31, 2021 from Tk 1830.01 billion a year before, according to the central bank's latest statistics.
"Major portion of the excess liquidity had already been invested in the government-approved securities as a risk-free investment for conventional banks," another BB official said.
But the Islamic banks and NBFIs cannot invest in any interest-bearing government securities that involve receipt of interest, the central banker said while explaining the excess-liquidity situation with the Islamic banking institutions.
Of the total excess liquidity, Islamic banks held Tk 346.94 billion as on October 31, which was Tk 355.85 billion a month ago, the BB data showed.
Farman R Chowdhury, managing director of Al-Arafah Islami Bank Limited, welcomed the government's latest moves, saying that it will help reduce the excess liquidity in banks, particularly Islamic ones.
"Lack of investment opportunities like conventional banks in the money market has pushed up surplus funds in the Islamic banking sector," the senior banker explained.
Officials of different Islamic banks, however, said higher amounts of surplus funds are now eroding profitability of the Shariah-based financial intermediaries in recent months.
"All the Islamic banks may invest their excess funds in the two-type government securities with lower returns on such investment," a senior executive of a leading Islamic bank told the FE about such productive use of idle money.
The Islamic banks are now allowed to invest their excess liquidity in the Bangladesh Government Islami Investment Bond (BGIIB).
Currently, twin Islamic bonds -- three-month BGIIB and six-month BGIIB -- are in operation.
In the private sector, BEXIMCO, a leading business conglomerate of Bangladesh, has already issued asset-backed Green-Sukuk bonds worth Tk 30 billion for the first time in the country for expanding its businesses.
A total of 10 full-fledged Islamic banks have been operating with 1,619 branches, out of total 10,803 branches in the whole banking sector.
In addition, 40 Islamic banking branches of 9 conventional commercial banks and 194 Islamic banking windows of 13 conventional commercial banks are also providing Islamic financial services in Bangladesh.
In FY'21, the government raised Tk 80 billion through issuing the first Sukuk for implementation of a safe water-supply project titled "Safe Water Supply for the Whole Country".
The Department of Public Health Engineering (DPHE) will complete the implementation of the project by June 30, 2025.